Farmers’ Willingness to Pay for Index-Based Livestock Insurance in the North West of South Africa

Rural livelihoods in most developing countries are threatened by climate-related risks such as drought, flood, heat waves, storms, and so on. Although farmers have adopted several adaptation strategies, they have proven less effective than hoped. Hence, index-based livestock insurance, an innovation that significantly assists farmers to acclimatise to climate-related risks, has been proposed; and its adaptability has attracted a notable increase in other African countries. However, the success of its adoption is dependent on the inclination of the farmers to pay for the service. Accordingly, this study investigates their willingness to pay for index-based livestock insurance and its determinants, and the factors influencing the total livestock units to be insured in the North West province of South Africa. Cross-sectional data were obtained from 277 cattle farmers, drawn randomly from the study area. The contingent valuation method was applied to determine the farmers’ willingness to pay; and only 10.8% were willing to pay. Simultaneously, the Heckit sample selection model was used to analyse the data to identify the factors responsible for farmers’ willingness to pay and total livestock units to insure. The findings revealed that farmer’s experience, age, education, marital status, awareness of insurance and household dependents were statistically significant, and influenced the maximum price R600 ($42, max willingness to pay, WTP) of those who accepted index-based livestock insurance. However, by implication, the study concluded that to adopt index-based livestock insurance in the study area among the livestock farmers, there should be policies to cater for the aforementioned factors.